This article originally appeared on Shareable.net and is used with permission.

Liz Fong-Jones joined car sharing program Relay Rides
because her car was sitting parked most of the time. An
environmentally-minded M.I.T student and one-time Google employee, she
saw that by renting it out, she could maximize the car’s use and
potentially lessen the number of cars on the road. What she didn’t see
was that she was about to become the subject of a debate about insurance
and liability in the sharing economy. The man who rented Fong-Jones’s
car was found at fault in an accident in which he was killed and four
people in the other car were seriously injured. Insurance claims may
exceed Relay Rides’ million-dollar policy.

Commercial use of a personal vehicle is generally not covered by
basic auto insurance, and in most places companies reserve the right to
cancel or non-renew customers who rent their vehicles out. California, Washington, and Oregon
have all passed legislation that specifically prohibits insurance
companies from canceling insurance policies and takes liability off of
car owners who share their vehicles. In states where no legislation has been
passed, liability enters a grey area if insurance doesn’t cover car sharing and a claim exceeds the car-sharing company’s insurance.

Insurance companies don’t prohibit you from renting your vehicle, they just don’t cover it, and they reserve the right to cancel or non-renew insurance policies if a personal vehicle is being rented out.

Shelby Clark, founder and chief community officer of Relay Rides, feels
that an accident in a car-sharing vehicle would be treated like an
accident in any other vehicle, that liability would rest on the person at
fault. In such a case, when damages exceed coverage, one of two things
happens: there’s a settlement for the insurance limit, or else they go
after the estate of the person at fault, which may result in the claim going
unpaid or the creation of a payment plan.

Using a personal car for commercial purposes is nothing new in the
insurance world. Pizza delivery businesses and real-estate agents do it
all the time—the individuals or businesses simply add additional
coverage to their policy. What is new is the idea of people renting out
their vehicles. Insurance companies don’t prohibit you from renting your
vehicle; they just don’t cover it, and they reserve the right to cancel
or non-renew insurance policies if a personal vehicle is being rented
out.

Neither covered nor penalized

There is no independent data being collected on this right now, but,
according to Clark, insurance companies are not canceling or
non-renewing policies of customers who rent out their personal cars.

“People are already using their cars for commercial purposes and [insurance companies aren't] canceling ... policies, mainly because it’s for a risk
that they don’t cover,” he says. “Why would you turn away paying
customers over a risk that you don’t have exposure to? An insurance
company has the right to cancel your insurance policy if you rent out
your car, but we think it’s very unlikely that that would happen.”

Insurance giant Geico recently modified its policy to state that car
sharing is not covered, a move that Clark applauds, as he says it
clarifies what is already being practiced. By excluding car sharing, Geico is
saying that it is not taking on any additional risk, so there’s no reason
to cancel clients' policies.

Pete Moraga, spokesman for the Insurance Information Network of California,
speculates that other companies will follow Geico’s lead. “If Geico is
doing that now, he says, “I guarantee you that there will be other
insurance companies who will do that immediately, if they're not doing
it already.”

Levels of liability vary from state to state

Gaurav Kohli, founder and CTO of another vehicle-sharing company, JustShareIt,
takes a more conservative stance. Like Relay Ride, JustShareIt has a one-million
dollar insurance policy. But they are expanding only into the three
states that have legislation stating that the car owner cannot be held
liable, plus Texas and Illinois, where insurance law doesn’t prohibit
people from sharing their vehicles. JustShareIt won’t pursue the other
states until legislation is passed there.

With Geico modifying its policy and states creating legislation to prohibit insurance companies from dropping those enrolled in car sharing programs, the trend appears to be moving away from cancellations.

“We’re going to markets where there is not too much liability,” he
says. “In other places, if you use your car for commercial purposes,
which basically is car sharing, then if any liability happens, then yes,
the owner and others can have problems."

Despite the differing approaches among vehicle-sharing companies,
there is little evidence of policy cancellations. No one I spoke with in
the insurance industry could say whether policies were being cancelled
or not. With Geico modifying its policy and states creating legislation
to prohibit insurance companies from dropping those enrolled in car
sharing programs, the trend appears to be moving away from
cancellations.

Clark reports that they have not had one person’s policy cancelled or
non-renewed in more than two years of operation and that cars are
oftentimes better-insured when they’re rented out than when when they’re being driven by the owner.

“Our cars are some of the best-insured cars on the road,” he says.
“Our insurance
limits are quite generous, but it’s sort of how our
legal system and our insurance system work, that damages could exceed
the claim limits and the claim would go unpaid.”

One possible reason policies haven’t been cancelled is that insurance
companies have no way of knowing that a car is in a sharing program
unless it’s in an accident. Even then, Moraga says, there would be
communication between the insurer and the owner, detailing changes to
the policy and providing the owner an opportunity to either leave the
car sharing program or find a new insurer.

Room for improvement

Something that Kohli and Clark agree upon is that the insurance
arrangement for peer-to-peer car sharing in the United States could be much
better.

In the insurance world, the personalized market and the commercial
market rarely cross, but the sharing economy has changed this.

“I think other countries are doing an awesome job working with
insurance companies and offering insurance in a much better way than in
America,” says Kohli. “In Australia and Europe, [peer-to-peer companies] are the ones who are
providing insurance on behalf of the insurance company. If the car owner
wants to rent their vehicle out, they have to buy insurance from the
car sharing company on behalf of the insurance company, at a higher
price. This way, the insurance companies are more liable
to participate because now they’re getting all these cars shifting to
their company and they're getting the higher cost. That is a really good
model.”

In the insurance world, the personalized market and the commercial
market rarely cross, but the sharing economy has changed this.

“The thing that’s so unique to sharing is that it really modifies
ownership and liability,” says Julie K. Davis, a vice president of
brokerage, research and social media for Heffernan Insurance Brokers.
“Traditional insurance products, whether commercialized or
personalized, were all built on ownership and liability connecting
together. Sharing modifies the concept.”

Unlike health care, which is regulated at the federal level, property
and casualty insurance is regulated on a state-by-state basis. What
this means for insurance companies is that they have to get insurance
commissioners in each state to approve policy changes.

“Every state has their own legal issues and their own nuances,” says
Davis. “Insurance carriers have to invest a lot of money to deal with
all these attorneys and all these state legislative people. You have to
look at it from their side,” she continues. “If they're being asked to
spend an enormous amount of budget to get policy forms approved, they
turn around and say, 'Well, how much of a premium is this going to
generate for me?' If it’s not going to generate a whole lot of premium, they don't really want to make a lot of effort to do it.”

She says that a lot of insurance carriers have had interest in the
sharing economy and that some companies even have products designed for it in research
and development.

“The best place to create the marketplace is on the commercialized
side,” she says, noting that the sharing economy provides an opportunity
for insurers to create a new insurance product that covers the owner,
the car sharing company, and the driver.

Home-sharers also seeing progress

Like car sharing, home rentals through peer-to-peer platforms such as Airbnb
are also in new territory when it comes to insurance. Basic homeowner's
and renter's insurance doesn’t generally cover home rentals, but many
companies will let you buy additional insurance. Airbnb has a million-dollar host guarantee,
but the company stresses that it doesn’t replace homeowner's or renter's
insurance but acts more like a product guarantee or warranty. In the
event that your home is damaged by an Airbnb renter, the guarantee
covers it.

When it comes to insurance within the sharing economy, the community
is taking the lead and the industry is trying to figure out
how to follow.

The company’s terms of service states that personal liability and
stolen goods are not covered by its Host Guarantee. This is typical of
basic homeowners or renters insurance. If you want additional coverage,
you can add it into your policy. Airbnb encourages its hosts to work,
transparently with their insurance providers so that they know what is
covered in their policy.

According to Emily Joffrion, director of consumer strategy and
insights at Airbnb, they have booked over 10 million guest nights and
have not seen any cases of an insurance company dropping a host. In
fact, the opposite has proven true. “We’ve seen the insurance industry
open up to peer-to-peer insurance products,” she says, “because it is an
area of growth for the industry.” She adds that Airbnb is “actively
working with the insurance industry to develop unique products,” and is
exploring options to offer liability insurance for hosts.

As with vehicle sharing, there are different models regarding home rental insurance. Couchsurfing is a free travel network with no money exchanged. Its terms of use states that it shall not be liable for damages of any kind.

Tripping, a community platform, connects travelers with people and aggregates home rentals from companies including Flipkey, Homeaway, and Airbnb. The company relies on its partner sites for guarantees
and/or insurance for both hosts and travelers. Tripping, like other
peer-to-peer organizations, also focuses on educating its community
members on communication, safe traveling and protecting property.

“The way that we look at it and the way a lot of these companies look
at it,” says Tripping founder and CEO Jen O’Neal, “is that we’re going
to be here for a long time so we need to not only set up the
infrastructure now but make sure that users feel comfortable using sites
like this so that we can propel the sharing economy overall.”

New frontiers in sharing

When it comes to insurance within the sharing economy, the community
is taking the lead and the insurance industry is trying to figure out
how to follow. Many insurance companies seem to be taking the
wait-and-see approach, but a great opportunity has presented itself to
them to get in early on a rapidly growing economic platform.

"People want to buy mobility instead of a car. I think that insurance companies will have no choice but to recognize that consumer preferences are changing.”

TrustCloud, a
tool that measures virtuous online behaviors and transactions to
build a TrustScore for use in the sharing economy, has been
collaborating with multiple insurance carriers to tailor products for
the sharing economy, using their TrustCard distribution platform.
According to CEO Xin Chung, they've been solicited by multiple carriers.

"We can't disclose names," Chung says, "but we can confidently say we
have solutions ready to address sharing risk at the transactional level,
transforming our partners' risk from a cost center to a revenue
generator."

“There’s a huge opportunity for insurance companies here,” says
Clark, noting that Relay Rides has also had conversations with a number
of companies. “For an insurance company, personalized vehicle policies
are their bread and butter,” he continues, “but the nature of these
relationships is changing. People want to buy mobility instead of a car.
I think that insurance companies will have no choice but to recognize
that consumer preferences are changing.”

A new sharing economy is emerging—but how does it fit within our legal system?

Welcome to the new age of collaborative consumption.

Cat Johnson contributes regularly to Shareable.net, where this article first appeared. She is a freelance writer reporting on community, culture, music
and design. Other venues she's written for include GOOD, the Santa Cruz
Weekly, Metro Silicon Valley, and No Depression. Follow her on Twitter at @catjohnson.